Factors that influence Elasticity of Demand

Elasticity of demand refers to change in quantity demanded of a good in response to change in price of that good. Elasticity of demand is of 5 types which I have already explained; now let’s look at the factors which influence the elasticity of demand of a good –

1. If a good has close substitutes than any increase in price of that good will lead to drastic fall in demand of a good and it lead to rise in demand of its close substitutes. For example Xbox and play station are close substitutes when it comes to gaming, any increase in price of Xbox will induce some consumer to go for its substitute that is play station.

2. Another factor which influences elasticity of demand is the amount which is spent by the consumer on a good. If a consumer spent substantial part of his or her income on a good then any change in price of a good will lead to consumer switching from that good, however if consumer spends only small part of his or her income then change in price of a good will not lead to a drastic drop in sales of the good. So if a consumer is thinking of buying a car will pay higher attention to any change in price of a good, as compared to when he or she is taking decision regarding buying an apparel from supermarket.

3. Another factor which influences the elasticity of demand is the quantity of a good which is bought by the consumer of a good. A quantity which is bought regularly will have higher impact of rise in price as compared to that good which is bought in lower quantity. So for example if price of milk which is used daily goes up than consumer will switch to its substitute however if the price of ice cream where consumer spend only small portion of his or her income goes up then it will not affect the consumer that much.

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